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Kissing Market Risk Goodbye

John Jansen and Rob Wolff

It’s the time of life that you have been waiting all your working years to experience. Retirement has finally come, and you can enjoy what you have been working so hard for. But suddenly, a flood of questions stream through your mind: What will happen if the market takes a sudden downturn?

How safe are my investments from losing value? Did I save enough to receive income for life? If you are similar to many Americans, then these are questions you have already asked yourself when planning for retirement in regard to the security of your money.

In the recent market crash of 2008, many Americans watched substantial portions of their retirement savings vanish within weeks. For many, this meant that a comfortable retirement, filled with vacations and luxuries saved for later in life, was sacrificed in order to stretch the remaining account values.

The significance of protecting retirement accounts from the vulnerability of negative market exposure cannot be stressed enough. Poor returns or losses occurring in the retirement phase are much more damaging than those in the accumulation phase. For starters, the amount of time required to recover losses is not as readily available as it is in those years in which an individual is employed. During working years, a person is able to wait out market corrections since the money invested does not need to be accessed until later in life. Additionally, withdrawals in the form of income payments decrease the basis on which interest may be earned.

An important factor that should be taken into account regarding income payments is the steady rise of life expectancy in the United States due to advancements in modern medicine. Since the 1960s, the average American lifespan has increased by a full two years every decade. If this trend continues, in thirty years, average life expectancy will have increased by a full six years from 78.54 in 2010 to 84.54 in 2040. The possibility of living an additional six years emphasizes the importance of protecting retirement accounts from market loss.

Just a couple of decades ago, a product that could assure the safety of your investment regardless of market performance did not exist. Fortunately, for many upcoming retirees, such a product has been developed to alleviate the concern of decreasing retirement account values due to poor market performance. You may be asking yourself, what is this product? A powerful financial vehicle called the fixed index annuity. The fixed index annuity was developed to help eliminate the fear of losing money when the market experiences downturns and enjoying returns when the market experiences positive gains.

A fixed index annuity works by placing a large portion of the premium into a portfolio consisting of solid and steady bonds. The rest of the amount is used to purchase options that track the performance of a selected equity market, usually the S&P 500, allowing for gains to be realized in market upswings. This amount is usually capped, but allows the product to enjoy market gains while the portfolio of bonds gives the product the security from losses when the market experiences losses.

Top five reasons to consider investing in a FIA

  1. Locked in credited interest
    • Each year the interest credited to the account is locked in and gains are made based on the annual performance. Gains will be realized during years of positive market growth, but losses will not be incurred during years when the market performs negatively.
  2. Tax-deferred growth
    • This is an important principle that allows for the growth of the fund without tax deduction until money is withdrawn. Importantly, this means that interest may be earned on interest prior to tax, allowing for maximum growth.
  3. Potential for gains without the risk of market losses
    • The diversification of choices within a fixed index annuity assures that the principal amount invested in the fund will never experience losses even when the market drops.
  4. Protection of money saved for retirement
    • Although gains may be capped for years with positive growth, the peril of losing money when the market goes down is eliminated, creating a more secure retirement fund.
  5. Initial deposit bonus
    • Many fixed index annuities offer additional bonuses ranging from two to ten percent that are automatically credited to the account upon its inception.

If, the security of your hard-earned retirement dollars by the elimination of market risk is important to you, the fixed index annuity can be a shrewd financial choice. As with any financial decision, it is wise to meet with an experienced financial planner to review retirement goals and expectations to decide whether or not this product suits your needs for retirement.

About the Author:

Robert T. Wolff, MA,PFP, and John M. Jansen are the founders of North End Financial llc, a financial planning firm in Virginia Beach, VA that focuses on preparing people for their financial futures.

To contact Rob, call (757) 498-5895 or email him at

To contact John, call (757) 646-5700 or email him at


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